Related Party Transactions

12 Months Ended

Dec. 31, 2014

Note 15 - Related Party Transactions

Samuel G. Rose and Julie Walters

Pursuant to the terms of the Purchase Agreement associated with out 8% convertible promissory notes (see note 8), Samuel G. Rose was appointed to our board of directors on August 4, 2014, and Mr. Rose and Julie Walters own in excess of 5% of our outstanding common stock.

10% Convertible Redeemable Preferred Stock. During the year ended December 31, 2011, we sold to Mr. Rose and Ms. Walters 100,000 shares of our Preferred Stock for $1.0 million. The Preferred Stock may be converted into shares of our common stock at any time by Mr. Rose and Ms. Walters at a conversion price effective January 1, 2015 of $0.70 per share, as adjusted. Mr. Rose and Ms. Walters are entitled to receive dividends at the rate of 10% per annum payable quarterly, at our option, in cash, or in additional shares of common stock, and have the right to vote the Preferred Stock with our common stockholders on any matter.

Since certain revenue targets for the twelve months ended December 31, 2011 were not achieved, Mr. Rose and Ms. Walters received a warrant to purchase 500,000 shares of our common stock. During June 2014, we extended an offer to exchange for shares of our common stock any and all of our outstanding warrants from the holders thereof (the “Tender Offer”). Each warrant holder was provided with the terms of the Tender Offer regarding their outstanding warrants. For every $10 of value attributed to the warrant, we offered to exchange 14.17707 shares of our common stock. The value of the warrants was derived from third parties using Monte Carlo simulation models and the Black-Scholes Option Pricing Model. Pursuant to this Tender Offer, Mr. Rose and Ms. Walters received approximately 259,300 shares of common stock in exchange for the warrants to purchase 500,000 shares of common stock.

Through December 31, 2014, Mr. Rose and Ms. Walters received an aggregate of approximately 635,400 shares of common stock as dividend payments on the Preferred Stock held by them.

8% Convertible Promissory Notes (2012). Effective April 25, 2012, we entered into a Memorandum of Understanding (the “MOU”) with Mr. Rose and several other investors. Pursuant to the MOU, we issued to Mr. Rose a demand promissory note (the “Demand Note”) in the principal amount of $1,666,667. Interest accrued on the unpaid principal balance of the Demand Note at a rate of 8.0% per annum. On August 24, 2012, we entered into a Note Purchase Agreement (the “Purchase Agreement”) with Mr. Rose, MLTM Lending, LLC, Allen Kronstadt and certain other investors (the “Note Purchase Agreement Investors”), pursuant to which, as of December 31, 2014, we have issued and sold to Mr. Rose an aggregate principal amount of $5,209,260 of our 8.0% convertible promissory notes (the “8% Notes - 2012”) which are initially convertible into shares of our common stock, at a conversion price equal to $0.40 per share of common stock, subject to adjustment as provided on the terms of the 8% Notes - 2012, and associated warrants (the “8% Note Warrants”) to purchase, in the aggregate, 13,023,151 shares of common stock, subject to adjustment as provided on the terms of the 8% Note Warrants. At the initial closing under the Purchase Agreement, in consideration for the issuance of the 8% Notes - 2012 and the 8% Note Warrants issued at such closing, Mr. Rose converted the aggregate principal amount outstanding, together with all accrued and unpaid interest, under the Demand Note and paid us in cash for the balance. Through December 31, 2014, Mr. Rose has received an aggregate of 1,265,849 shares of common stock as interest payments under the 8% Notes - 2012 held by them.

In connection with the entry into the Purchase Agreement, we granted to the Note Purchase Agreement Investors: (i) certain demand and piggyback registration rights with respect to the registration of certain Company securities under the Securities Act and the rules and regulations promulgated thereunder, and (ii) a security interest and lien in all of our assets and rights to secure our obligations under the 8% Notes – 2012.

The 8% Notes - 2012, including all outstanding principal and accrued and unpaid interest, are due and payable on the earlier of five years from date of issuance or upon the occurrence of an Event of Default (as defined in the 8% Notes - 2012). We may prepay the 8% Notes - 2012, in whole or in part, upon 60 calendar days prior written notice to the holders thereof. Interest accrues on the 8% Notes - 2012 at a rate of 8.0% per annum, payable during the first three years that the 8% Notes - 2012 are outstanding in shares of common stock, valued at the weighted average price of a share of common stock for the twenty consecutive trading days prior to the interest payment date, pursuant to the terms of the 8% Notes - 2012. During the fourth and fifth years that the 8% Notes - 2012 are outstanding, interest that accrues under the 8% Notes - 2012 shall be payable in cash.

Pursuant to our Tender Offer, Mr. Rose received 10.9 million shares of common stock in exchange for their 8% Note Warrants to purchase 13.0 million shares of common stock.

Revolving Credit and Letter of Credit Support Agreement. During the year ended December 31, 2013, we entered into a Revolving Credit and Letter of Credit Support Agreement (the “Revolving Loan Agreement”) pursuant to which Mr. Rose along with MLTM Lending LLC (the “Lenders”) had agreed to lend us up to $1.0 million each on a revolving basis. Each revolving loan made under the Revolving Loan Agreement bears interest at 12% per annum, of which 4% is payable by us in cash on the first business day of each month, and 8% is payable by us in shares of common stock on the first business day of each calendar quarter, valued at a price equal to the average of the Weighted Average Price (as such term is defined in the Revolving Loan Agreement) of a share of common stock for 20 consecutive trading days prior to the interest payment date. The maturity date of the Revolving Loan Agreement is December 31, 2015 (the “Maturity Date”). As of December 31, 2014, Mr. Rose had provided $1.0 million pursuant to the Revolving Loan Agreement.

Under the terms of the Revolving Loan Agreement, we may prepay the revolving loans at any time, in whole or in part, together with all accrued and unpaid interest, without premium or penalty. The Lenders may accelerate all amounts due under the Revolving Loan Agreement, together with accrued and unpaid interest, upon the occurrence of an Event of Default, as defined in the Revolving Loan Agreement.

In connection with the entry into the Revolving Loan Agreement, pursuant to the terms thereof, we entered into a Security Agreement pursuant to which we granted a security interest and lien in all of our accounts receivable and inventory to secure the Lenders’ obligations under the Revolving Loan Agreement.

Through December 31, 2014, we paid approximately $42,700 in interest and we issued to Mr. Rose approximately 142,100 shares of common stock as payment of interest.

8% Convertible Promissory Notes (2014). During the months of June and August 2014 pursuant to the terms of our 8% convertible promissory notes (the “8% Notes - 2014”), we issued and sold to Mr. Rose, an aggregate principal amount of $666,666 of our 8% Notes - 2014 which are initially convertible into 2.5 million shares of our common stock, subject to adjustment as provided on the terms of the 8% Notes - 2014, (i) at any time prescribed by the Investors or (ii) upon any date prior to the maturity date of June 11, 2019, on which the Company’s common shares are listed on a U.S. based stock exchange.

Through December 31, 2014, we paid Mr. Rose approximately $28,100 of interest on the 8% Notes – 2014.

12% Convertible Promissory Notes. During the three months ended September 30, 2014 pursuant to the terms of our 12% convertible promissory notes (the “12% Notes”), we issued and sold to Mr. Rose, an aggregate principal amount of $333,333 of our 12% Notes which are initially convertible into shares of our common stock, subject to adjustment as provided on the terms of the 12% Notes, at any time prescribed by the Investors at a conversion price equal to 85% of the weighted average price of a share of common stock for the ten consecutive trading days prior to the conversion date. The 12% Notes mature on June 30, 2015.

Through December 31, 2014, we paid Mr. Rose approximately $9,400 of interest on the 12% Notes.

12% Secured Notes. During the three months ended December 31, 2014 pursuant to the terms of our 12% secured notes (the “12% Secured Notes”), we issued and sold to Mr. Rose, an aggregate principal amount of $650,000 of our 12% Secured Notes. The 12% Secured Notes mature on June 30, 2015 and are secured by a pledge of the common shares of Axion International, Inc. and Axion Recycled Plastics Incorporated, owned by us.

Through December 31, 2014, we paid Mr. Rose approximately $4,600 of interest on the 12% Secured Notes.

A summary of the transactions entered into with Mr. Rose and Ms. Walter is as follows:

			Common Stock
			Equivalent,
	Principal		If Converted

10% convertible preferred stock	$	1,000,000	1,428,571
8% convertible notes (2012)		5,209,260	13,023,151
12% revolving		1,000,000	-	(i)
8% convertible notes (2014)		666,666	2,500,000
12% convertible promissory notes		333,333	980,391	(ii)
12% secured notes		650,000	-	(i)

TOTAL	$	8,859,259	17,932,113

(i) not convertible into shares of common stock.

(ii) assumed 10-day volume weighted average price was $0.40.

MLTM Lending, LLC and the ML Dynasty Trust

MLTM Lending, LLC and the ML Dynasty Trust own in excess of 5% of our outstanding common stock. Pursuant to the Schedule 13D filings made by MLTM Lending, LLC and the ML Dynasty Trust, the ML Dynasty Trust shares with MLTM the power to vote or direct the vote of, and to dispose or direct the disposition of, greater than 5% of our outstanding stock. Thomas Bowersox, a member of our board of directors, is a trustee of the ML Dynasty Trust.

8% Convertible Promissory Notes (2012). Pursuant to the MOU, we issued to MLTM Lending, LLC a Demand Note (the “MLTM Demand Note”) in the principal amount of $1,426,667. Interest accrued on the unpaid principal balance of the MLTM Demand Note at a rate of 8.0% per annum. Pursuant to the Purchase Agreement, as of December 31, 2014, we have issued and sold to MLTM Lending, LLC an aggregate principal amount of $4,888,444 of our 8% Notes - 2012 and associated 8% Note Warrants to purchase, in the aggregate, 12,221,112 shares of common stock, subject to adjustment as provided on the terms of the 8% Note Warrants. In consideration for the issuance of the 8% Notes - 2012 and the 8% Note Warrants, MLTM Lending, LLC converted the aggregate principal amount outstanding, together with all accrued and unpaid interest, under the MLTM Demand Note and paid us in cash for the balance. Through December 31, 2014, MLTM Lending, LLC has received an aggregate of 1,169,138 shares of common stock as interest payments under the 8% Notes that it holds.

Pursuant to our Tender Offer, MLTM Lending, LLC received 10.2 million shares of common stock in exchange for their 8% Note Warrants to purchase 12.2 million shares of common stock.

The terms of the 8% Notes – 2012, the 8% Note Warrants and the Tender Offer are described above.

Revolving Credit and Letter of Credit Support Agreement. During the year ended December 31, 2013, we entered into a Revolving Credit and Letter of Credit Support Agreement (the “Revolving Loan Agreement”) pursuant to which MLTM Lending LLC and Mr. Rose (the “Lenders”) have agreed to lend us up to $1.0 million each on a revolving basis. In addition, the Revolving Loan Agreement provides that MLTM Lending, LLC will provide letter of credit support to us of up to $500,000 (the “LC Sublimit”). Each revolving loan made under the Revolving Loan Agreement bears interest at 12% per annum, of which 4% is payable by us in cash on the first business day of each month, and 8% is payable by us in shares of common stock on the first business day of each calendar quarter, valued at a price equal to the average of the Weighted Average Price (as such term is defined in the Revolving Loan Agreement) of a share of common stock for 20 consecutive trading days prior to the interest payment date. The maturity date of the Revolving Loan Agreement is December 31, 2015 (the “Maturity Date”). As of December 31, 2014, MLTM Lending, LLC had provided $1.0 million pursuant to the Revolving Loan Agreement and supported $400,000 of outstanding letters of credit.

As consideration for the revolving loans extended under the Revolving Loan Agreement, we agreed to issue to each Lender 100,000 shares of common stock, upon signing of the Revolving Loan Agreement and again prior to December 31, 2014 and 2015. Through December 31, 2014, MLTM Lending, LLC has received a total of 200,000 shares of common stock. As consideration for MLTM Lending, LLC providing letter of credit support, we are required to pay a letter of credit commission fee on the date of the Revolving Loan Agreement, and on each one year anniversary of the date of the Revolving Loan Agreement prior to the Maturity Date, in the amount equal to (i) 2% of the LC Sublimit in cash and (ii) shares of common stock, with an aggregate value of 4% of the LC Sublimit, with each such share of common stock valued at a price equal to the average of the Weighted Average Price of a share of Common Stock for the 20 consecutive trading days prior to the date of payment.

Through December 31, 2014, we paid MLTM Lending, LLC approximately $62,800 in interest and commitment fees, issued approximately 261,000 shares of common stock in various commitment fees, and approximately 142,500 shares of common stock as payment of interest.

8% Convertible Promissory Notes (2014). During the months of June and August 2014 pursuant to the terms of our 8% convertible promissory notes (the “8% Notes - 2014”), we issued and sold to MLTM Lending, LLC, an aggregate principal amount of $666,667 of our 8% Notes - 2014 which are initially convertible into 2.5 million shares of our common stock, subject to adjustment as provided on the terms of the 8% Notes - 2014, (i) at any time prescribed by the Investors or (ii) upon any date prior to the maturity date of June 11, 2019, on which the Company’s common shares are listed on a U.S. based stock exchange.

Through December 31, 2014, we paid MLTM Lending, LLC approximately $28,100 of interest on the 8% Notes – 2014.

12% Convertible Promissory Notes. During the three months ended September30, 2014 pursuant to the terms of our 12% convertible promissory notes (the “12% Notes”), we issued and sold to MLTM Lending, LLC, an aggregate principal amount of $333,334 of our 12% Notes which are initially convertible into shares of our common stock, subject to adjustment as provided on the terms of the 12% Notes, at any time prescribed by the Investors at a conversion price equal to 85% of the weighted average price of a share of common stock for the ten consecutive trading days prior to the conversion date. The 12% Notes mature on June 30, 2015.

Through December 31, 2014, we paid MLTM Lending, LLC approximately $10,100 of interest on the 12% Notes.

12% Secured Notes. During the three months ended December 31, 2014 pursuant to the terms of our 12% secured notes (the “12% Secured Notes”), we issued and sold to MLTM Lending, LLC, an aggregate principal amount of $650,000 of our 12% Secured Notes. The 12% Secured Notes mature on June 30, 2015 and are secured by a pledge of the common shares of Axion International, Inc. and Axion Recycled Plastics Incorporated, owned by us.

Through December 31, 2014, we paid MLTM Lending, LLC approximately $4,500 of interest on the 12% Secured Notes.

A summary of the transactions entered into with MLTM Lending, LLC is as follows:

			Common
			Stock
			Equivalent,
			If
	Principal		Converted

8% convertible notes (2012)	$	4,888,444		12,221,112
12% revolving		1,000,000		-	(i)
8% convertible notes (2014)		666,667		2,500,000
12% convertible promissory notes		333,334		980,394	(ii)
12% secured notes		650,000		-	(i)

TOTAL	$	7,538,445		15,701,506

(i) not convertible into shares of common stock.

(ii) assumed 10-day volume weighted average price was $0.40.

Allen Kronstadt

Allen Kronstadt owns in excess of 5% of our outstanding common stock, and was appointed to our board of directors on September 11, 2012 pursuant to the terms of the Purchase Agreement associated with out 8% convertible promissory notes (see note 8).

8% Convertible Promissory Notes (2012). Pursuant to the MOU, we issued to Mr. Kronstadt a demand promissory note (the “Kronstadt Demand Note”) in the principal amount of $1,666,667. Interest accrued on the unpaid principal balance of the Kronstadt Demand Note at a rate of 8.0% per annum. Pursuant to the Purchase Agreement, as of December 31, 2014, we have issued and sold to Mr. Kronstadt an aggregate principal amount of $5,209,297 of our 8% Notes - 2012 and 8% Note Warrants to purchase, in the aggregate, 13,023,243 shares of common stock, subject to adjustment as provided on the terms of the 8% Note Warrants. At the initial closing under the Purchase Agreement, in consideration for the issuance of the 8% Notes - 2012 and the 8% Note Warrants at such closing, Mr. Kronstadt converted the aggregate principal amount outstanding, together with all accrued and unpaid interest, under the Kronstadt Demand Note and paid us in cash for the balance. Through December 31, 2014, Mr. Kronstadt has received an aggregate of 1,245,032 shares of common stock as interest payments under the 8% Notes - 2012 that he holds.

Pursuant to our Tender Offer, Mr. Kronstadt received 10.9 million shares of common stock in exchange for their 8% Note Warrants to purchase 13.0 million shares of common stock.

The terms of the 8% Notes – 2012, the 8% Note Warrants and the Tender Offer are described above.

8% Convertible Promissory Notes (2014). During the months of June and August 2014 pursuant to the terms of our 8% convertible promissory notes (the “8% Notes - 2014”), we issued and sold to Mr. Kronstadt, an aggregate principal amount of $666,667 of our 8% Notes - 2014 which are initially convertible into 2.5 million shares of our common stock, subject to adjustment as provided on the terms of the 8% Notes - 2014, (i) at any time prescribed by the Investors or (ii) upon any date prior to the maturity date of June 11, 2019, on which the Company’s common shares are listed on a U.S. based stock exchange.

Through December 31, 2014, we paid Mr. Kronstadt approximately $27,900 of interest on the 8% Notes – 2014.

12% Convertible Promissory Notes. During the three months ended September 30, 2014 pursuant to the terms of our 12% convertible promissory notes (the “12% Notes”), we issued and sold to Mr. Kronstadt, an aggregate principal amount of $333,333 of our 12% Notes which are initially convertible into shares of our common stock, subject to adjustment as provided on the terms of the 12% Notes, at any time prescribed by the Investors at a conversion price equal to 85% of the weighted average price of a share of common stock for the ten consecutive trading days prior to the conversion date. The 12% Notes mature on June 30, 2015.

Through December 31, 2014, we paid Mr. Kronstadt approximately $9,300 of interest on the 12% Notes.

12% Secured Notes. During the three months ended December 31, 2014 pursuant to the terms of our 12% secured notes (the “12% Secured Notes”), we issued and sold to Mr. Kronstadt, an aggregate principal amount of $650,000 of our 12% Secured Notes. The 12% Secured Notes mature on June 30, 2015 and are secured by a pledge of the common shares of Axion International, Inc. and Axion Recycled Plastics Incorporated, owned by us.

Through December 31, 2014, we paid Mr. Kronstadt approximately $3,200 of interest on the 12% Secured Notes.

A summary of the transactions entered into with Mr. Kronstadt is as follows:

			Common Stock
			Equivalent,
	Principal		If Converted

8% convertible notes (2012)	$	5,209,297		13,023,243
8% convertible notes (2014)		666,667		2,500,000
12% convertible promissory notes		333,333		980,391	(ii)
12% secured notes		650,000		-	(i)
TOTAL	$	6,859,297		16,503,634

(i) not convertible into shares of common stock.

(ii) assumed 10-day volume weighted average price was $0.40.

Perry Jacobson

Perry Jacobson was appointed to our board of directors on September 20, 2010.

10% Convertible Redeemable Preferred Stock. During the year ended December 31, 2011, we sold to Mr. Jacobson 12,500 shares of our Preferred Stock for $125,000. The Preferred Stock may be converted into shares of our common stock at any time by Mr. Jacobson at a conversion price effective January 1, 2015 of $0.70 per share, as adjusted. Mr. Jacobson is entitled to receive dividends at the rate of 10% per annum payable quarterly, at our option, in cash, or in additional shares of common stock, and has the right to vote the Preferred Stock with our common stockholders on any matter.

Since certain revenue targets for the twelve months ended December 31, 2011 were not achieved, Mr. Jacobson received a warrant to purchase 62,500 shares of our common stock. During the three months ended June 30, 2014, pursuant to our Tender Offer to all warrant holders to exchange the fair value of any warrants then outstanding, for shares of our common stock, Mr. Jacobson received approximately 32,400 shares of common stock in exchange for the warrants to purchase 62,500 shares of common stock.

Through December 31, 2014, Mr. Jacobson received an aggregate of approximately 79,400 shares of common stock as dividend payments on the Preferred Stock held by them.

- Definition

The entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.

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